Question
Freese, Inc., is in the process of preparing the fourth quarter budget for 2016, and the following data have been assembled: The company sells a
Freese, Inc., is in the process of preparing the fourth quarter budget for 2016, and the following data have been assembled:
The company sells a single product at a price of $68 per unit. The estimated sales volume for the next six months is as follows:
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September | 13,000 | units |
October | 12,000 | units |
November | 14,000 | units |
December | 20,000 | units |
January | 9,000 | units |
February | 10,000 | units |
All sales are on account. The company's collection experience has been that 30% of a month's sales are collected in the month of sale, 68% are collected in the month following the sale, and 2% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e., accounts receivable less allowance for uncollectible accounts) will be $601,120 on September 30, 2016.
Management's policy is to maintain ending finished goods inventory each month at a level equal to 30% of the next month's budgeted sales. The finished goods inventory on September 30, 2016, is expected to be 3,600 units.
To make one unit of finished product, 5 pounds of materials are required. Management's policy is to have enough materials on hand at the end of each month to equal 40% of the next month's estimated usage. The raw materials inventory is expected to be 25,200 pounds on September 30, 2016.
The cost per pound of raw material is $4, and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable for raw material purchases is expected to be $75,960 on September 30, 2016.
Required: a. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (October, November, and December) of 2016.
October | November | December | Total | |
Expected sales in units | ||||
Selling price per unit | ||||
Total sales |
b. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2016.
Cash collections from: | October | November | December | Total |
September sales | ||||
October sales | ||||
November sales | ||||
December sales | ||||
Total cash collections | $0 | $0 | $0 | $0 |
c. Prepare a production budget in units, by month and in total, for the fourth quarter of 2016.
October | November | December | Total | |
Beginning inventory of finished goods | ||||
Units to be produced | ||||
Goods available for sale | 0 | 0 | 0 | 0 |
Desired ending inventory of finished goods | ||||
Quantity of goods sold | 0 | 0 | 0 | 0 |
d. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2016.
October | November | December | Total | |
Beginning inventory of raw materials | ||||
Purchases of raw materials | ||||
Raw materials available for use | 0 | 0 | 0 | 0 |
Desired ending inventory of raw materials | ||||
Quantity of raw materials to be used in production | 0 | 0 | 0 | 0 |
e. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2016. (Do not round intermediate calculations.)
Cash payments for: | October | November | December | Total |
September purchases | ||||
October purchases | ||||
November purchases | ||||
December purchases | ||||
Total cash payments | $0 | $0 | $0 | $0 |
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